What is Inflation?

When we talk about Inflation it is basically when the prices of goods and services go up. The more prices go up the more the value of money falls. We measure inflation in the U.S. by three things:

1. The Consumer Price Index (CPI) measures the change in the prices of goods and services that consumers pay for over time. For example the CPI measures how much your shampoo costs today as opposed to three years ago.

2. The Producer Price Index (PPI) measures the change in selling prices for those making the product. For example how much does the maker of your favorite clothes pay to make those clothes.

3. Personal Consumption Expenditures Price Index (PCE) shows how much are people actually buying goods and services and measures it on a monthly basis. Are they shopping or not?